Why Chart Patterns?

Finance Articles | April 3, 2009

Chart patterns are patterns that occur in the stock market which give you buy and sell signals. So why look at them?

Chart patterns are naturally occurring patterns in the stock market that can indicate a big move either to the upside or the downside. They can be a good indicator for short term movements.

So why are they so important? Why can they give you a great way to trade the stock market?

1. They offer you a target

Chart patterns normally have a target that you can shoot for. This means that that when you enter the trade you know what you are planning to happen.

It can be hard to determine how much profit is enough. Where you are just being greedy, and where you still need to hang onto the trade. Well chart patterns have targets so you know exactly when to take your profits and when to run.

2. They Let You Cut Your Losses

In addition to letting you know exactly where you should be aiming for they also allow you to know when the trade is just not working out and it is better if you just cut your losses short.

If a pattern breaks out, but fails to move higher and in fact the price of the stock goes back into the pattern it broke out of, that is a good sign that the pattern has failed and it is likely to start turning against you. So if it was me I would want to exit for a small loss before it became a big loss.

3. Lets you trade all Time Periods

If you want to be a day trader chart patterns can help you, if you want to hold your stock for several days chart patterns can help you, and if you want to hold your stock for many months chart patterns can help you.

The same principals apply so you only need to readjust your chart in order for you to trade your desired time frame.

For more on chart patterns visit http://www.stocks-simplified.com/chart_patterns.html

For more stock tips visit http://www.stocks-simplified.com/stock_tips.html

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ABOUT THE AUTHOR

When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.